By ERWIN CHLANDA
An internal document details exhaustively the events over the past several years which tore apart the native title organisation, Lhere Artepe Aboriginal Corporation, and threatened the commercial entities linked with it.
The document, briefing notes for the directors of the corporation and Lhere Artepe Pty Ltd, the ultimate owners of the group’s assets, was obtained exclusively by the Alice Springs News Online.
It details efforts to stabilise the group’s finances and business dealings, and forecasts a brighter future.
But it also confirms what has been reported by the Alice Springs News Online investigation for over a year, drawing on a range of sources – and a lot more.
The conduct of the person referred to as the “former CEO” – Darryl Pearce – rates a frequent mention.
The document reports:-
• An estimated $7m loss arising from a failed investment in a civil engineering firm, CDE, arranged by Mr Pearce.
• A $3.5m loan, negotiated by him with an Adelaide company, ACA Finance: “The former CEO apparently negotiated a deal by which this loan would be reduced to $1 million in return for transferring three of the Mt Johns blocks to Guistozzi [the head of the company], but the agreement for this deal was not signed. As a result, the full $3.5 million remains payable and is in fact overdue,” the briefing note says.
• Delays with the Mt Johns residential real estate development pushed it to the brink of the National Australia Bank taking control of the project.
• At the time of the briefing only seven buyers were left (of the touted near-sellout) who hadn’t claimed back their deposits.
• The mess Mt Johns turned into was secured by the three IGA supermarkets (Flynn Drive, Hearne Place, Eastside) bought for about $14m in part with a Federal grant: “These arrangements were also negotiated by the former CEO and we have been questioned by Commonwealth public servants whether this is contrary to the terms of the Federal Government grant that partially funded the purchase of the supermarkets business.
“The former CEO did not inform the Lhere Artepe Enterprises board of any of these proposals in advance, nor seek the board’s views or approval.”
• “An additional mortgage was placed on the supermarkets unbeknown to Commonwealth Government which put the grant funds in jeopardy,” says the note.
• A deal over maintenance required in one of the supermarkets, involving blocks of land provided by the vendor, also apparently went pear shaped: “Without reference to the board of Lhere Artepe Enterprises, the former CEO arranged to transfer the land, for no payment to Lhere Artepe Supermarkets, to Lhere Artepe Services Pty Ltd. It is therefore apparently no longer available to Lhere Artepe Supermarkets to fund the maintenance work.”
• The Board and members were being kept in the dark, it is claimed. There were just two meetings between April and August 2011.
The note says: “At neither of these meetings did the former CEO provide a proper written report to the board to explain the significant obligations and expenditures he had negotiated over the previous several months without reference to the board.
“An oral update was provided on each occasion. Despite continued requests to the former CEO for formal reporting and updates on the main activities of Lhere Artepe Enterprises subsidiary companies, the Board only received its first written report late in November 2011.
“Even then, it clearly did not fully inform the Board of the current state of play for Lhere Artepe Enterprises. The information provided was incomplete, poor quality and generally too late.”
The Alice Springs News Online invited comment from Lhere Artepe executives, including chairman Ian McAdam, and Mr Pearce, who was sacked late last year.
No comments were received by deadline but any replies coming to hand will be considered for publication.
[ED – The Alice Springs News Online is publishing this because we have received countless complaints from native title holders about being kept in the dark about their assets and their land.
These people have encouraged us to keep up our investigation.
Also, significant public funds have flowed into the various enterprises, so the public in general has a right to know.]
The following is an excerpt from a briefing note for the Directors of Lhere Artepe Pty Ltd and Lhere Artepe Aboriginal Corporation given in February.
This briefing note … provides information … on the main operational and project issues that have arisen within Lhere Artepe Enterprises and its subsidiaries over the past six months.
Key points on the Mt Johns subdivision:
• The completion of the Mt John’s subdivision has fallen so far behind schedule that it has threatened the profitability of the venture. Following management changes and the Board’s reengagement of key stakeholders, financiers and regulators, Part 5 approval for the Mt Johns Subdivision was granted on 23 December 2012, and titles are expected to issue shortly [ED – Titles for the first stage have now been issued.]
• Loans acquired to fund various aspects of the Mt Johns project have been serviced from cash from the supermarkets business, which is now causing a cash flow problem within that business. Steps are being taken to alleviate the effects.
• The purchase by Lhere Artepe Nominees Pty Ltd of the CDE group, and subsequent insolvency of CDE Civil, has resulted in a capital loss of approximately $7m.
• Pat Miller, Andrew Ross, Christine Charles and Peter Holden all agreed to become directors of the three Lhere Artepe Enterprises subsidiaries to provide a more consistent direction and approach across the group
• Over the past two months, the board has been meeting at least weekly by phone to provide more structured direction for the Lhere Artepe Enterprises group, greater support for the supermarkets management and to address some critical issues that had arisen, including delays in approval for the Mt Johns subdivision and the imminent prospect of the National Australia Bank exercising its right to step-in a take control of the project.
• External stakeholders such as the NAB and Alice Springs Town Council have shown greater confidence, and relationships with them have markedly improved since the Board of Lhere Artepe Enterprises assumed greater oversight and control of the Lhere Artepe Enterprises businesses.
• Although one of the independent directors, Phil Camens, resigned toward the end of 2011, he has agreed to return to the Lhere Artepe Enterprises board, bringing back with him the financial expertise and corporate history that could have been permanently lost to us.
• As from 19 January 2012, Ian Conway has been appointed as the third Lhere Artepe director on the board of Lhere Artepe Enterprises to fill the casual vacancy left by the resignation of Chippy Miller in 2011.
Mt Johns Project
• The Mt Johns subdivision was not completed by the August 2010 deadline as expected, which meant existing purchase contracts could have been withdrawn by potential purchasers.
• The Board has kept abreast of the number of sales contracts – it is important to note that only 7 contracts remain on the site and a number of contracts have been rescinded because of the delay in the issue of titles.
• Since early December 2011 the Lhere Artepe Enterprises Board has secured the funding and approvals necessary to issue title to the Mt John blocks so that they are available for transfer to purchasers.
• To ensure the completion of Mt Johns subdivision and issue of titles the Board has:
• Met with Regulators to ensure part five approval was gained – this was achieved on the 23rd December after the Board was able to regain support and commitment by regulators that the unfinished works and defects would be carried out.
• Secured a bank guarantee from the NAB to ensure defects and unfinished works could be completed.
• Secured the services of a conveyancer so that titles could be issued for the allotments.
• Renewed the contract with Framptons the estate agent which is charged with selling the allotments.
• Reviewed and agreed the arrangements with Opus as the site Superintendents to ensure final works are carried out in accordance with the requirements of the bank guarantee.
• Negotiated with the NAB to pay outstanding invoices to local suppliers of services to Mt Johns.
CDE Civil and Mining and CDE Equipment
• CDE was providing services to the Mt Johns project in 2010 when it encountered financial difficulties. The former Lhere Artepe Enterprises CEO [ED – Darryl Pearce] negotiated the purchase by Lhere Artepe Nominees of a majority shareholding in CDE, which was part-funded by a $3.5 million loan from ACA Finance, a company associated with Tony Guistozzi, who at the time was a director of CDE.
• The former CEO apparently negotiated a deal by which this loan would be reduced to $1 million in return for transferring three of the Mt Johns blocks to Guistozzi, but the agreement for this deal was not signed. As a result, the full $3.5 million remains payable and is in fact overdue.
• The ACA loan is secured by a range of mortgages, charges and guarantees not just over the Mt Johns assets, but over the supermarkets business and real estate as well. These arrangements were also negotiated by the former CEO and we have been questioned by Commonwealth public servants whether this is contrary to the terms of the Federal Government grant that partially funded the purchase of the supermarkets business.
• The former CEO did not inform the Lhere Artepe Enterprises board of any of these proposals in advance, nor seek the board’s views or approval
• CDE Civil and Mining became insolvent and was put into administration shortly after its purchase by Lhere Artepe Enterprises. Its shares are worthless, which caused a capital loss that the former CEO estimated at $7 million
• When questioned by the board about the reasons for acquiring CDE, the former CEO said that it was imperative that CDE finish its work at Mt Johns and that the only way to guarantee that, given its financial problems, was for Lhere Artepe Enterprises to buy it. The Board did not endorse this.
• To the best of the Board’s knowledge, the former CEO remains the sole director of CDE Equipment. We understand that it has effectively ceased trading and equipment has been sold to cover loans and guarantees held against the equipment – the Lhere Artepe Enterprises Board understands that no profits will be made from these sales.
• It is the Board’s view that a decision needs to be made urgently about whether CDE Equipment is, or is about to become, insolvent and if so, it must cease trading. If the company continues to trade when it is not able to pay its debts, the director and Lhere Artepe Enterprises as the majority shareholder may become liable for the debts
• An experienced general manager for the company’s supermarkets business has been recruited, Peter McGannon.
• Mr McGannon has made a number of staffing changes which will assist the success of the supermarket businesses.
• Stock changes and changes in suppliers have also been made.
• It is important to note that supermarkets are currently trading well although much of cost of servicing the debts associated with the Mt Johns project and CDE purchase is being met by cash generated by the Supermarkets. … This will only be rectified when sales of Mt Johns increase and current debts to the bank decrease. …
• The board has recently become aware of some quite serious maintenance issues at the supermarkets premises, particularly the Northside store. Several hundred thousand dollars will need to be spent to rectify these in the near future. Lack of cash caused by the arrangements described in the previous paragraph is preventing the remedial work being done more quickly
• Loans were obtained from IBA [Indigenous Business Australia] to assist the purchase of the Supermarkets – those loans are currently being serviced through the Supermarket cash flow.
• A Grant was also received from the Commonwealth Government ABA [Aboriginal Benefit Account] program for $5.8m.
• A further loan was received from CentreCorp for $500k – this money is due to be repaid before the end of 2012.
• Part of the agreement with the vendor (Paul Venturin) to purchase the three Supermarkets included the transfer of 5 blocks of land in Burke Street Alice Springs from the vendor. We understand that the land was included as acknowledgment by the vendor that the maintenance work referred to above would need to be funded by Lhere Artepe Supermarkets in the short term, and the land could be used to provide the funding. However, without reference to the board of Lhere Artepe Enterprises, the former CEO arranged to transfer the land, for no payment to Lhere Artepe Supermarkets, to Lhere Artepe Services Pty Ltd. It is therefore apparently no longer available to Lhere Artepe Supermarkets to fund the maintenance work. Given the cash drain on the supermarkets business described above, the funds that could be released from selling the land would be the only source of money to fund the maintenance work and we would like to discuss with the Lhere Artepe Pty Ltd Board an appropriate way to rectify the inappropriate transfer of land out of the Lhere Artepe Enterprises group.
Lhere Artepe Enterprises Governance and Corporate Issues
• The Lhere Artepe Enterprises Board did not hold its first meeting until April 2011, despite a number of requests from board members that a meeting was needed. Even then, Peter Holden was not informed of that meeting.
• The full board (without Chippy Miller, who had resigned) met for the first time in August 2011. At neither of these meetings did the former CEO provide a proper written report to the board to explain the significant obligations and expenditures he had negotiated over the previous several months without reference to the board. An oral update was provided on each occasion.
• Despite continued requests to the former CEO for formal reporting and updates on the main activities of Lhere Artepe Enterprises subsidiary companies, the Board only received its first written report late in November 2011. Even then, it clearly did not fully inform the Board of the current state of play for Lhere Artepe Enterprises. The information provided was incomplete, poor quality and generally too late.
• By that time, the lack of structure and lack of respect for normal governance had caused the Board to become seriously concerned with the conduct of the former CEO. He was taking major decisions without informing the Lhere Artepe Enterprises board and was not implementing the board’s requests. For lengthy periods, he was absent without leave and uncontactable. At the same time, some board members were dealing more directly with external stakeholders and becoming aware of information that was alarming. In particular, the financial position was much worse than had been understood and external stakeholders such as the National Australia Bank had lost confidence that Lhere Artepe Enterprises was able to manage the Mt Johns project.
• Toward the end of November last year, it had become apparent to the Board that urgent action was necessary. Despite many attempts to contact the former CEO by phone and email to engage him in discussions about how to manage the situation, he did not respond.
• In early December, the board resolved to make the position of CEO redundant as the ongoing expense could not be afforded.
• To address significant business challenges, in particular the slippage in timing of completion of the Mt Johns Stage 1 Project, the board then became much more actively involved in the management of Lhere Artepe Enterprises …
• The Board has been meeting on at least a weekly basis since November to ensure the Directors are fully abreast of current issues and how they are to be handled, and also the financial and legal implications of past decisions which were not part of the Board approval processes.
In the view of the Lhere Artepe Enterprises Board, clear progress has been made on some critical issues in the last two months. The state of the Lhere Artepe Enterprises group has demonstrably improved in that time. Probably the turning point was the grant of Part 5 approvals for the Mt Johns project, which was a great relief and enables us to be more confident that the debts that are currently a burden on the supermarkets business will be paid down in the foreseeable future. Our increased optimism was reflected in a Board meeting in Alice Springs last week at which, for the first time, we were able to start considering options to grow the supermarkets business once it overcomes the cash flow hurdles it is facing in the immediate future.
Proper governance is important for an organisation like Lhere Artepe Enterprises, on many levels. In the view of the Board, the serious problems that developed during 2011 were directly attributable to a lack of governance and accountability. We welcome closer relations with Lhere Artepe Pty Ltd and Lhere Artepe Aboriginal Corporation and will be happy to agree a reporting timetable with Lhere Artepe Pty Ltd for the future. …
PHOTOS: Top – Publicly funded supermarket acquisition props up Mt Johns development. Above right – Darryl Pearce. Above – Proposed development for Mt Johns.